RWE’s Lynemouth coal burning power station in Northumberland is set to close by the end of this year under environmental rules, will be given a new lease of life after the EU gives the UK approval to throw money at it following authorisation from the Commision. EU state aid approval for the consumer-funded subsidies.
The European Commission has concluded that UK support for the conversion of Lynemouth power station from coal to biomass complies with EU state aid rules. The Commission found that the project will further EU environmental and energy goals without unduly distorting competition.
In December 2014 the UK notified plans to subsidise the conversion of the coal-fired Lynemouth power plant to biomass. The plant would be able to generate 420 MW of electricity running exclusively on wood pellets. The UK Government intends to support the project in the form of a premium paid on top of the market price of the electricity generated (a so-called “Contract for Difference”). The project will receive aid until 2027 and, according to UK estimates, will generate about 2.3 TWh of low-carbon electricity per year. The plant is due to use approximately 1.5 million tonnes of wood pellets per year, mainly sourced from the United States, Canada and Europe.
The 420 megawatt plant, which produces enough electricity to power 450,000 homes, could be up and running again within 18 months, subject to a final investment decision early next year, RWE said.
Under the terms of the subsidy contract, Lynemouth will be paid a fixed price of £105 for every megawatt-hour of biomass-fired power it generates until 2027 – well over double the current market price of electricity.
Of course this brings on to focus the James Bond themed, Drax power station that is also looking for cash to switch to wood pellets. Drax shares rose almost 13pc on the back of the decision, although the company issued a statement cautioning against assuming it too would be approved.
The National Audit Office last year warned that the subsidies could be higher than needed because of the way ministers awarded them. It estimated that the subsidies for Lynemouth would be worth £1.1bn in total, although that assumed conversion by the end of this year.
However the EC concluded that in the case of Lynemouth there was “no risk of overcompensation”. We shall see. The EC are not know for the accuracy when it comes to power related decision making or vision.